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Home Publications Blogs Beat the Press Robert Samuelson's Social Security Demagoguery at the Washington Post

Robert Samuelson's Social Security Demagoguery at the Washington Post

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Monday, 27 December 2010 08:42

Robert Samuelson is once again calling for cuts to Social Security and Medicare, ostensibly in the name of generational fairness. Samuelson makes the now common argument that a hugely disproportionate share of government spending goes to these programs that primarily serve the elderly. Of course, using Samuelson logic we should also complain that a hugely disproportionate share of government expenditures go the very wealthy.

The reason that the wealthy get a disproportionate share of government expenditures is that they bought government bonds which pay interest. The reason that the elderly get a disproportionate share of government benefits is that they paid Social Security taxes and Medicare taxes that were intended to support these programs.

Samuelson goes on to complain that Social Security has become a "middle-age retirement system," citing Eugene Steuerle of the Urban Institute. Samuelson apparently is not familiar with data on life expectancy that shows that workers in the bottom half of the wage distribution have seen relatively small gains in longevity over the last three decades. He is apparently also unfamiliar with Steurele's calculations on the rate of return that retirees get on their Social Security benefits. For many middle income retirees in the baby boom cohorts it will be less than 1.0 percent and in some cases less than zero, according to Steuerle.

What is remarkable about Samuelson's piece is that there is absolutely zero effort to consider any real issues of generational equity in a piece that is ostensibly devoted to the topic. For example, there is no discussion of the fact that the current generation of near retirees experienced an unprecedented period of wage stagnation over their working lifetime. The median hourly wage in 2010 is less than 10 percent higher than it was in 1973. 

By contrast, the Social Security trustees project that average hourly wages will rise by more than 40 percent over the next three decades. While it is possible that income inequality will continue to increase so that these gains again go overwhelmingly to the top, there is no precedent in U.S. history for the level of inequality that this would imply.

It is also striking that Samuelson never mentions health care costs in discussing the enormous burden created by Social Security and Medicare. If per person health care costs were the same in the United States as in any of the countries that enjoy longer life expectancies, we would be facing huge long-run budget surpluses, not deficits. In other words, the problem is not that our benefits are too generous but rather that we pay too much for them.

There are simple mechanisms that would help to restrain health care costs in the United States. For example, supporters of the free market would suggest allowing retirees to buy into the more efficient health care systems elsewhere, with the U.S. government, the host government, and the beneficiaries dividing the savings.

We could also develop more efficient mechanisms for financing prescription drug research. This could save hundreds of billions of dollars a year on prescription drug costs, in addition to eliminating the incentive for drug companies to lie about the safety and effectiveness of their drugs.

However, raising these issues involves confronting powerful interest groups like insurance companies, drug companies, and the doctors lobbies. Robert Samuelson and the rest of the crew at the Washington Post (a.k.a. Fox on 15th) doesn't like to get these folks angry, they would rather just beat up the elderly.

Comments (19)Add Comment
And if wages remain stagnant or even fall.....
written by David Cay Johnston, December 27, 2010 10:30
What will SS look like if we experience three more decades of stagnant wages, with little growth, as opposed to the SSA projection?

The 2010 trustees report assumed future wage growth at 85% of the long-term historical average, if memory serves.

But what if it is more like our past three decades -- at 15 percent of historical norms? Or what if wages are driven down, as a few economists have warned?
First Movers Always Get The Most So Others Can Survive, Low-rated comment [Show]
...
written by JBG, December 27, 2010 11:58
There are simple mechanisms that would help to restrain health care costs in the United States. For example, supporters of the free market would suggest...removing the ludicrous barriers to entry into the healthcare field.

If I want to start a computer-repair business, or a car repair business, or an appliance-repair business, I can do it on a shoestring and rise or fall on my ability to supply service the market is willing to buy.

If I want to go into the human-repair business, I have to go to school for ten years (managing to pass Organic Chemistry on the way), and jump various specific mandatory hurdles before I can offer my services at all.

Doctors have managed to convince us all that they are "special" in a way that is essentially religious (and phony). Ah, you say, you want to let just anybody mess with people's health? No, only those who can (truthfully) convince buyers they have something worthwhile to sell...same as people who fix brakes on cars or install/repair furnaces. Note that these latter also involve life-and-death matters.

Even in cases like lay midwives, whose records tend to be way better than those of obstetricians, lay practitioners have been driven from the field almost everywhere. Supporters of the free market should clamor for that field to be made level. It's a lot more direct way of reducing health costs than encouraging people to fly to India.

...
written by vorpal, December 27, 2010 1:24
what is there to say other than, by the people, of the people, for the rich.

...
written by MB, December 27, 2010 1:52
On the topic of Nothing to Fear but Fear Itself (and on the topic of twitches that can cause the hamster to fall off the wheel), here is an article about the SS payroll tax that adds either confusion or a compelling argument. The author writes in support of the program but describes "fictions" about the role of the payroll tax. He believes that the 2% reduction will not be harmful. Have we been overpaying the payroll tax all these years?

I like the payroll tax because it requires no thoughts, paperwork, or special skills for participation. But the payouts are minimal so supplemental retirement income is necessary, even though many get by entirely on SS alone. So what level of working-lifetime contribution would be required to strengthen the SS program, double the payouts, and potentially take employers out of the game for providing long-term commitments to former employees? It's a role which they begrudge and perform with uneven quality/equality throughout the work force---the least reliable, and in reality, most problematic leg of the stool.

http://www.newdeal20.org/2010/12/16/cut-the-payroll-tax-to-save-social-security-30278/

"To understand the current set-up of Social Security, we need to go back to the Greenspan Commission, which tried to change Social Security from “paygo” (tax revenues equal benefits) to “advance funding” (taxes exceed spending) in 1983. Before the crisis, the payroll tax was set about two percentage points higher than necessary for total revenues to equal benefits paid. So the proposed payroll tax holiday essentially returns the program to “paygo”. But in truth, tax revenues never “pay
for” benefit payments — either on an individual level or at the level of the program as a whole. This was well understood at the time the program was originated. However, President Roosevelt feared that Social Security would be seen as welfare or, worse, as socialism. So a fiction was maintained: that there would be both an individual link between taxes paid in and retirement benefits paid out (albeit, a loose one), and that at the aggregate level the payroll tax “pays for” benefits. Later, Greenspan’s Trust Fund would provide a buffer stock of “money in the bank” for the inevitable date on which a shortfall would occur. These twin beliefs are what James K. Galbraith would call a “convenient fiction” and over time they became a not so innocent “innocent fraud”.

Liberals have come to see that payroll tax fiction, as well as Greenspan’s Trust Fund fiction, as necessary to maintaining support for Social Security. Perhaps there was a time when this was true. But the fictions have become an albatross around Social Security’s neck. They are forcing left-leaning liberals to oppose tax relief for workers, arguing for a tax rate that is set well above what is required to generate revenues equal to benefits in a growing economy (and thus acting as a fiscal drag on an already suffering economy). Worse, they fuel the fire of Social Security’s enemies, encouraging calculations of money’s worth and Armageddon day."
...
written by Calgacus, December 27, 2010 3:25
Have we been overpaying the payroll tax all these years?

MB - Yes, emphatically yes. The tax is too damn high! Greenspan's tax hike & the big trust fund was 100% an attack on SS and on the poor. See that wages haven't moved for 40 years? - that income has flowed upwards? - this tax was the biggest single cause. Would we be in a Great Recession now if the SS tax hadn't helped create the dangerous Clinton surpluses and removes $ from working peoples' hands right now? Read & reread Auerback & Wray's articles.

Making people grossly overpay for SS was the main tool in weakening support for SS and convincing people that it won't be around for them. Macroeconomic, fiscal pay-as-you-go neutrality might not have been the "best" idea, but it was far superior to the insane current Greenspan Robin-Hood-in-Reverse-for-30 years system.
How is trading fairness from the boomers to the younger generations
written by ljm, December 27, 2010 6:37
a gurantee that they will have "hope?" I've heard this hope argument before. I didn't buy it then and I'm not buying it now. All it does is create generational warfare. We need single payer insurance with the authority to call what the drug companies charge for medicine, "highway robbery," and do something about it. Also, I want the option to end my own life with dignity should that time come.
Hugely Disproportionate Federal Spending
written by ilsm, December 28, 2010 7:50
goes to militarism. 20% of US government outlays are for war profiteering. That does not include Veterans Affairs, military pensions/retired health, nuclear weapons labs, Coast Guard, etc.

UK that figure was 7% before austerity.,

When austerity starts Bonhomme Richard needs to look to Fredric Bastiat and ask why Bonhomme needs to buy such extravagant security!!

A like amount is spent by the federal government on all other welfare programs for the rich, who lend the money to the federal government for their programs.
...
written by skeptonomist, December 28, 2010 9:37
And a hugely disproportionate share of local taxes goes to the young (schools). When the SS bashers advocate either raising sales and property taxes to pay for retirement or a federal takeover of schools they would at least not be making a completely nonsensical argument about generational spending disparities.
Request for Dean Baker to explain an issue
written by FS, December 28, 2010 10:43
Mr. Baker:

I continually read on blog posts the claim that illegal aliens are collecting vast amounts of welfare, Social Security, and medical benefits.

I was wondering whether you would clarify the facts on this issue in a blog post.

Thanks-
FS
Donation Q
written by James, December 28, 2010 1:40

Dean,

I would like to donate. If I am interested how the funds are spent, would I be able to receive any type of annual report? I know you have a lot of integrity.
...
written by PeonInChief, December 28, 2010 2:46
James--

You can find out about CEPR's finances by going to the Guidestar button on the left side of the blog. If you want more info than the basic, register and you can see their most recent 990 (non-profit tax return).
If McCain Is Entitled...
written by DamnedLiberal, December 29, 2010 3:43
Hey, if a grumpy "conservative" senator married to a rich woman who owns a brewery collects HIS social security benefits, then everything must be hunky dory.
How To Increase the Social Security Surplus:
written by BoycottKochBrothers, December 29, 2010 3:48
Just tell the Koch brothers that a well-funded social security fund will:
1. End all pollution regulations, and
2. Inspire massive town hall yelling and screaming.
This is an obscene discussion
written by Tom, December 29, 2010 4:01
At a time when wages are dropping, unemployment is at intolerable levels, people are exhausting their unemployment benefits, food banks are overwhelmed, entire families are becoming homeless, college grads can't get jobs, U.S. corporations are sitting on record cash, the Wall Street scammers continue their greed trip, the income gap is becoming increasingly greater, the rich just got a huge tax break, American companies are increasingly sending jobs overseas and America has become, indisputably, a plutocracy, somebody has the audacity to complain about an "entitlement" program that's largely funded by the recipients (plus a few billion from illegal immigrants who will never collect it)?

There are far too many people who need to wake up and realize the world that exists in their mind is not the world in which we live.

We should be focusing on how to reclaim government from the plutocrats.
Divide and Conquer
written by deanx, December 29, 2010 7:06
This is more of 'playing the end against the middle'. No we are not going to cut-off grandma; and the Kids, they are our future. We just have to hang together my friends.

Make my day ... Go Ahead and try to cut Grandma's SS stipend.
NY Times is almost as bad as the Wash-Fox Post
written by Michael Radosevich, December 29, 2010 10:22
This one is rich. In an article in the Dec 29 edition of the NY Times, Kevin Mack starts out by saying the Constitution "gives Congress treacherously broad authority to pass laws 'necessary and proper'”.

I think Mr. Mack does not know what "treacherously" means.
cartier trinity ring
written by cartier trinity ring, December 30, 2010 3:25
I think Mr. Mack does not know what "treacherously" means. http://www.cartier4us.com
Calls for cuts to Social Security
written by apishapa, January 01, 2011 10:42
and Medicare amount to calls for the dreaded "death panels" that tea partiers and Sarah Palin got all foamy mouthed over. Wht I mean is if you demand cuts to Social Security and Medicare, basically whatyou are calling for is the death or more old people. There is no other way to look at it. Republicans get all bent outof shape at the idea of telling someone shen it is time to die. Well taking away their money for food andshelter, then taking away their health care is telling them it is time to die.

People who want to deprive the old and sick of their earned benefits are really promoting death panels. They want old people to die. Taking away these benefits which these paople paid for over years of working and paying their share, is theft and it is murder.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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